The Great Depression in the United States started with the stock market crash in October 1929. The Wall Street crash manifested the start of a decade of extreme poverty, rising unemployment, deflation, insufficient profit, dipping agricultural revenue, as well as missed opportunities for economic development and individual betterment. As a whole, confidence was low among everyone in society due to the US great depression.
Why did the Great depression happen in the US?
Many factors contributed towards the great depression in the United States and they particularly include the following:
- Spiralling consumer debt
- Mismanaged markets that allowed indiscriminate lending by investors and banking institutions
- The dearth of new high-development manufacturing units.
All these factors worked together to generate a plunging economic curve of lower customer spending, sinking industrial output, and diminishing confidence.
Related Article: What Caused The Great Depression?
Which industries suffered the most during the Great Depression America?
The sectors that were hit the most include shipping, construction, logging, mining, and agriculture (aggravated by the dust-bowl circumstances in the central region of the country). Besides, there was an adverse impact on the manufacturing of vehicles and equipment. Customers had to delay their buying processes because of this slump.
In the winter of 1932-33, the economy of the US was in its worst shape. Subsequently, the nation witnessed some extent of development for a four-year period. However, joblessness reached new highs during the recession of 1937-38.
What was the Impact of the Great Depression on American Politics?
As a result of the Great Depression, there were significant changes in the politics of America. President Herbert Hoover, going three years into the depression, turned a loser against Franklin Delano Roosevelt in the US Presidential Elections of 1932 by a pathetically huge margin. He was broadly criticized for not taking sufficient measures to battle the emergency. The economic revival strategy by President Roosevelt, known as the New Deal, brought about novel packages for aid, recuperation, and restructuring, and introduced a significant shift in US politics.
What were the Effects of the Great Depression on Immigrants?
The Great Depression also led to a rise in emigration in the history of the United States for the first time. Many immigrants returned to their native nations. Several indigenous American nationals took shelter in Australia, Canada, and South Africa. There were migrations en masse by inhabitants from severely impacted regions in the Great Plains (the Okies) and the South to areas like the Northern cities and California. The entire event is known as the Great Migration.
During this time, racial unrest took place in significant numbers. Immigration had reverted to usual by the 1940s, and emigration dropped. Frank McCourt was a recognized instance of an immigrant who took refuge in Ireland, as narrated in Angela’s Ashes, a famous book written by him.
Impact on economic theories and American literature
The recollection of the Great Depression era also influenced contemporary economic theories and led to a multitude of amendments in the manner in which the authorities coped with economic recessions like the implementation of stimulus packages, Social Security, and Keynesian economics. The time of great depression took a pivotal role in influencing contemporary literature of the United States. As a consequence, John Steinbeck, a well-known author, wrote novels like Of Mice and Men and The Grapes of Wrath using the resources of this widespread economic disaster.
Banks during the time of the Great Depression
In this depression era, several banks started to give way when agriculturalists failed to pay up their loans. During that period, no Federal Deposit Insurance was in place since bank insolvencies were a usual aspect of economic life. Concerned investors began to take back their savings. As a result, the money multiplier functioned the wrong way. Banks were under tremendous compulsion to wind up their assets (like withdrawing loans instead of generating fresh credit). Consequently, the money flow reduced and the economy squeezed (also known as the Great Contraction). This led to a substantial drop in collective investment. The diminished money supply additionally intensified price deflation, causing more stress on already grappling commercial enterprises. Short selling of real estate took place, making the situation even worse.
By January 1931, more than 800 banks ceased their operations. By October 1931, more than 2100 banks suspend their operations with the uppermost rate documented in the Federal Reserve District. Here 2 out of 5 banks had suspended their operations. By 1933, over 9000 banks shut down their doors crashing the banking sectors throughout the US.
What was the way out?
The obligation to the gold standard from the Government of the United States stopped it from participating in macroeconomic fiscal policy. There was a need to contain escalating interest rates for drawing overseas investors who acquired assets from other nations through gold. Nonetheless, the spiralling interest rates subdued inland commercial borrowing. The interest rates in America got a huge blow as a result of France’s choice to hike interest rates for drawing gold to treasuries. In principle, America had two probable reactions to that: Let the exchange rate to modify, or raise their individual interest rates for preserving the gold standard.
During that period, the United States dollar was attached to the gold standard. Hence, the US citizens switched their dollars into francs for procuring further French assets. As a result, the demand for the American dollar sank, and the exchange rate went up. One of the exclusive options left for the United States for returning to economic stability was to raise interest rates.
So, the adverse impact of the Great Depression was far-reaching affecting every corner of US society for nine years.